Author: Wendy Shidi Wu*
| Jurisdiction: Hong Kong |
Topics: National Legislation Institutional and Administered Arbitration |
Despite overwhelming international criticism and local objection, Hong Kong’s new national security law came into force on June 30, 2020, which criminalizes separatism, subversion, terrorism, and collusion with foreign or external forces.[1] The articles provide China’s central government with enormous discretion to impose its criminal laws onto Hong Kong’s common law system.[2] Additionally, the new law authorizes Hong Kong’s chief executive to appoint judges in national security cases, which could erode the “one country, two systems” principle.[3]
In recent years, Hong Kong witnessed social unrest and near shutdown due to mass anti-government demonstration. Locals feared and protested against their diminished freedom of speech, government mandated digital surveillance, and China’s alarming extraterritorial powers in the city. With Beijing’s increasing control over Hong Kong’s judicial system, international business parties started favoring rival hubs such as Singapore, Paris, and London for alternative dispute resolution to avoid political implications.[4] The national security law further threatens Hong Kong’s current status as one of the world-leading international arbitration centers.
Previously, Hong Kong competed against Singapore to attract business to settle international commercial disputes. In 2019, the Hong Kong International Arbitration Centre (HKIAC) administered 308 arbitration cases, among which 89% were international. The amount in dispute totaled HK $36.4 billion (approximately US $4.7 billion).[5] Meanwhile, the Singapore International Arbitration Centre (SIAC) handled 479 arbitration cases, totaling US $8.09 billion.[6]
Although contracting parties are questioning Hong Kong’s ability to remain neutral and effective during arbitration process, HKIAC might still appeal to some international business. Under the reciprocal arrangement between Chinese courts and institutional arbitrators in Hong Kong, HKIAC remains the only arbitration venue outside mainland China where “parties can obtain interim relief from Chinese courts preventing companies from liquidating assets.”[7] Thus, HKIAC could still be the most preferable venue in cases involving Chinese companies, if a foreign party wants to preserve assets of their opposing party in mainland. [8] Moreover, due to the geographic, linguistic, and even security concerns, some Chinese companies might prefer HKIAC over SIAC as an arbitration center and subsequently negotiate to choose the Hong Kong jurisdiction.
Therefore, the national security law added a legal dimension to the business-political nexus in the financial center and enabled Beijing to govern over Hong Kong’s legal system. As Singapore outpaces Hong Kong in arbitrating disputes, it is well-positioned to win business from parties with growing concerns about Hong Kong’s judicial independence. Unsurprisingly, some parties have already been opting for Singapore as the alternative jurisdiction when drafting arbitration clauses in their contracts.[9] As The Economist predicted, Carrie Liam, the current chief executive, might just become “another small-town mayor” in the near future.[10]
[1] See Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region, Xinhua Net (June 30, 2020, 11:01 PM CST), http://www.xinhuanet.com/gangao/2020-06/30/c_1126179649.htm; see also The Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region gazetted and takes immediate effect (with photos), The Gov’t of the Hong Kong Special Admin. Region Press Releases (June 30, 2020, 11:58 PM HKT), https://www.info.gov.hk/gia/general/202006/30/P2020063001015.htm.
[2] Hong Kong security law: What is it and is it worrying? BBC News (June 30, 2020), https://www.bbc.com/news/world-asia-china-52765838.
[3] Natsuko Segawa, Security law threatens Hong Kong’s arbitration and trade hub status, Nikkei Asian Rev. (July 12, 2020, 10:51 AM JST), https://asia.nikkei.com/Economy/Security-law-threatens-Hong-Kong-s-arbitration-and-trade-hub-status.
[4] Segawa, supra note 3; see also Lulu Yilun Chen, Chanyaporn Chanjaroen & Laura Joffre, Hong Kong Rule of Law Fears Drive Arbitration Cases to Singapore, Bloomberg (July 22, 2020, 4:00 PM EDT), https://www.bloomberg.com/news/articles/2020-07-22/hong-kong-is-losing-to-singapore-as-a-venue-for-arbitration.
[5] 2019 Statistics, Hong Kong Int’l Arb. Ctr. (HKIAC), https://www.hkiac.org/about-us/statistics (last visited Sept. 16, 2020).
[6] Anna Zhang, Hong Kong’s Shaky Standing as a Financial Center Is Giving Rise to Singapore, The Am. Law. (June 30, 2020, 1:00 AM), https://www.law.com/americanlawyer/2020/06/30/hong-kongs-shaky-standing-as-a-financial-center-is-giving-rise-to-singapore-405-61343/.
[7] Chen et al., supra note 4.
[8] Segawa, supra note 3.
[9] Chen et al., supra note 4.
[10] Why business in Hong Kong should be worried, The Economist, (July 18, 2020), https://www.economist.com/china/2020/07/18/why-business-in-hong-kong-should-be-worried.
*J.D. Candidate 2022, Columbia Law School